What Is An EMI And How To Calculate it?

Aug 10, 2022

A loan’s EMI is a crucial component. However, the calculation of the EMI amount is difficult. The EMI calculator makes calculating the EMI amount quicker and simpler.

What is an Equated Monthly Installment (EMI)?

The amount owed to the money lender (a bank or other financial institution) is the equated monthly installment (EMI). This is because the borrower makes monthly interest and principal payments through EMIs up to the total amount of the loan.

A loan is a financial contract between a money lender and a borrower. The total principal and interest are divided by months that must pass until the loan is repaid.

How are Loan EMIs Calculated?

Principal, interest paid on loan, and tenure are the key factors determining a loan’s EMI. Each loan’s EMI differs based on these three factors. Therefore, it is crucial to grasp these three factors before selecting a specific loan.

Using a mathematical formula, excel, or an EMI calculator online, you may figure out your loan’s monthly installments (EMI). The EMI calculator is the simplest and quickest method for figuring out your loan EMI out of all the options.

How does a Loan EMI Calculator Work?

The loan EMI calculator reduces a complex computation to a straightforward one. The calculator’s formula is as follows:

EMI = P * [( r * (1 + r)^n) / ((1 + r)^n – 1)]

P stands for the principal amount.

It is the sum of money the lender lends to the borrower for a house, automobile, or other purposes. The cost of the purchase determines the loan amount. The EMI will increase as the loan amount increases. The principal amount is used to compute the interest. The loan amount must be put in the “loan amount” field of the EMI calculator.

n stands for the loan tenure.

It is the period allotted for loan repayment. This amount includes both principal and interest. The loan tenure depends on the loan type, the loan’s principal, and the lender. For example, a bank home loan will last longer than a car loan. Therefore, the duration must be provided in the “loan period” column of the loan EMI calculator. While calculating monthly EMIs, the loan tenure is calculated in months. For instance, if you are taking a loan for ten years, the value of n will be 10*12=120.

The ‘r’ stands for the loan’s rate of interest decided by the financial institution.

Types of Loan EMI Calculators

The parameters used by all calculators are the same. Therefore, they calculate the EMI amount payable using the same EMI calculator formula. The only distinction is that there may be minimum and maximum restrictions on the criteria, depending on the kind of loan.

These are the several categories of loan EMI calculators:

Home loan EMI Calculator

Finding out the EMI on a home loan is made more accessible by the home loan calculator. It takes a great deal of research and planning to buy a house. Because of the long tenure and substantial loan debt, this is a very significant financial and personal decision. Hence, it is advisable to calculate your home loan to get an idea of the burden you are going to incur.

 

Personal Loan EMI Calculator

Personal loans are “all-purpose loans,” which can be used for any purpose, including paying for travel or medical costs. The interest rate on personal loans is considerably higher because they are unsecured and have shorter terms. The same criteria are used by the personal loan calculator and other EMI calculators.

 

Car Loan EMI Calculator

The vehicle loan calculator uses the loan amount, the loan tenure, and the interest rate to calculate EMIs. Lenders provide a variety of plans for both new and used cars.

While figuring out the EMI value with the calculator, any down payment made can be excluded. In addition, lenders have the power to acquire and sell vehicles to recoup outstanding debts if loans are not repaid within the allotted time frame.

 

Education Loan EMI Calculator

Due to rising costs, it is becoming more and more challenging to afford a quality education. Financial institutions lend money in both domestic and foreign education loans. After the moratorium period, which is typically six months after the course is over or after the student finds employment, whichever comes first, the payback of an educational loan starts.

 

Loan Against Property EMI calculator

Any property that a borrower possesses, whether it is residential, commercial, or land, may be used as collateral for the loan against the property. This property must be mortgaged to the lender. However, the lender has the power to confiscate the asset pledged as collateral if there are any problems with the regular EMI repayment.

 

Business Loan EMI Calculator

Working capital and other business demands are all met through business loans. Business loans are also payable through monthly installments like different types of other loans. The calculator uses the loan amount, loan period, and interest rate to calculate the value of the EMI.

Factors Impacting Loan EMI

Numerous factors impact the EMI of your loan. These characteristics do not affect loans with short terms, but they do affect loans with extended periods such as home loans. This is mainly because mortgage loans are based on the constantly fluctuating MCLR (Marginal Cost of Lending Rate).

  • Policy Rates Set by the RBI

The EMI on your loan depends on RBI’s policy rate as it determines the rate of interest decided by the bank. When the central bank increases its policy rate, the cost of funds for banks increases. The banks pass their burden on to their borrowers, by increasing their interest rate on loans. As a result, your loan EMI also increases.

  • Credit Score

An individual’s creditworthiness is determined by banks using their credit score. A high credit score indicates creditworthiness. Banks treat lending money to such individuals as a safer investment. They offer loans at lower interest rates to them. According to banks, a person with a low credit score carries a higher risk of default. Hence, they charge higher interest rates for them. As a result, the loan EMI for people with low credit scores is higher than those with high credit scores.

  • Loan Tenure

When you choose a longer loan tenure, the overall interest amount you pay is high. But, your monthly EMI comes down. Hence, you must decide your loan tenure after considering whether you want to get rid of your loan as soon as possible or you want more liquid cash with you every month.

How to apply online for a loan through internet banking?

Yes, you can apply for a loan online. Follow the steps listed below:

  1. Access your bank account by using online banking.
  2. Make sure you qualify for a loan. On their websites, several banks offer user-friendly loan eligibility calculators.
  3. Complete the application form with your personal, financial, and employment information.
  4. Select the loan type, loan amount, and repayment period.

A bank employee will be in touch with you to provide more information.

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